When President Erdogan and his economy czar Mehmet Simsek visited the Gulf countries after May elections, UAE pledged $11.5 bn financing to Turkey, in sukuk purchases and a large trade finance loan to Ex Im Bank. Months passed with no news on UAE promise, but nor Bloomberg breaks the story that Turkey is nearing its inaugural bond sale to an Abu Dhabi sovereign wealth fund by the end of this year, a milestone for Turkish policymakers trying to regain foreign investor confidence after years of mistrust.
The government will likely offer 10-year bonds in tranches to ADQ, owned by the oil-rich capital of the United Arab Emirates, Turkey’s Treasury and Finance Minister Mehmet Simsek told Bloomberg on Thursday.
ADQ, which has about $160 billion of assets, declined to comment. However, Bloomberg’s seasoned Turkey reporting team has a stellar track record of extracting information from Turkish officials. The story doesn’t reveal how much ADQ will invest in the first instance. However even a small amount will be viewed as the pledge becoming a commitment, as well as bolstering Central Bank’s (CBRT) FX reserves which soared to a 9-year high as of last Thursday.
The investment even if the first trance is modest is also important, because foreign financial investors will now have more confidence that CBRT’s new exchange rate policy of allowing TL appreciate in real terms vs USD is sustainable—at least until end-March elections. The new perception of lower risk in TL could attract inflows into the TL government bond market, triggering an unwinding of the FX deposits in the financial system.
Bloomberg report adds that:
The expected transaction marks the beginning of what’s likely to be the biggest flow of capital into Turkey’s $1 trillion economy from the Middle East petrostates. The UAE and Saudi Arabia have both expressed interest in investing, following a policy makeover that’s brought Turkey’s era of cheap money to an end under Simsek, who was appointed in June. At the same time, President Recep Tayyip Erdogan boosted ties with regional heavyweights and led the outreach to oil producers.
“We don’t have to spend it immediately,” Simsek said of the likely proceeds from the expected sale. “Therefore, we may benefit from this opportunity partially before the end of this year.”
Simsek’s comments boosted the nation’s equities and domestic debt. The benchmark Borsa Istanbul 100 index rose as much as 1.2%, led by a 2% surge in the banking index. The yield on two-year lira notes fell from an intraday high of 41.6% to 41.17% as of 4:55 p.m. in Istanbul, though it was still six basis points higher than Thursday’s close.
The ADQ funds will be used to finance reconstruction efforts in Turkey’s southeastern provinces that were struck by two powerful earthquakes in February.
Source: Turkey Nears First Bond Sale to Abu Dhabi Fund in Landmark Deal
Commentary added by PA Turkey staff
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